Congress has passed a new stimulus bill (Consolidated Appropriations Act of 2021) that contains many provisions designed to help small businesses that continue to struggle in the wake of the COVID-19 pandemic. Here are the most important provisions for small business owners.
To find out the amount of your individual coronavirus stimulus payment, see Stimulus Check Calculator: How Much Will Your Coronavirus Payment Be?
The bill provides funding for new Paycheck Protection Program (PPP) loans. These are low interest loans up to $10 million designed to help businesses stay open during the pandemic. Form more information, see “How Much Money Can Your Business Get From the Paycheck Protection Program (PPP)?.”
The stimulus bill also authorizes a second round of loans for businesses that have already obtained a PPP loan. But these are available only for businesses with:
PPP loans for second-time borrowers are limited to $2 million. But certain businesses hard-hit by the pandemic, such as restaurants, can get an amount equal to 3.5 times their average monthly payroll costs instead of the normal 2.5.
PPP loans contain a unique feature that has made them incredibly popular: loan forgiveness. “Forgiveness” means you don't have to pay the money back. Moreover, the forgiven loan amount is tax-free. Businesses with employees must spend their PPP loans on certain types of qualifying expenses to obtain forgiveness. Qualifying expenses include employee wages and operating expenses like rent and utilities. The stimulus bill broadens the list of qualifying expenses to include expenses, property damage, supplier costs, and worker protection expenditures. The bill also simplifies the PPP loan forgiveness application for businesses that borrow less than $150,000.
Also, the stimulus bill provides that business expenses paid with forgiven PPP loans are still deductible by the business. This reverses an IRS ruling that would have prevented businesses from deducting such expenses. This substantially increases the benefit of the PPP loan program to businesses.
Another type of loan businesses can obtain from the SBA is as an Economic Injury Disaster Loan (EIDL). These are low interest 30-year loans of up to $150,000. The stimulus bill refunds the EIDL loan program for businesses in low-income communities. EIDL loan applicants can receive emergency loan advances of up to $10,000 from the SBA. The stimulus bill provides that these advances are tax free. Moreover, PPP loan forgiveness is not reduced by the amount of such advances.
The CARES Act passed by Congress in March 2020 required the SBA to make six monthly loan payments for businesses that obtained certain types of regular SBA loans, including:
The stimulus bill extends this loan payment subsidy to up to 14 monthly payments for various types of businesses that have been hard-hit by the pandemic, including: food service and accommodation; arts, entertainment, and recreation; education; and laundry and personal care services. The bill also makes these payments tax-free for the borrower.
The stimulus bill also expands the Employee Retention Tax Credit. This is a special refundable tax credit established by the CARES Act for businesses that maintain their employee payrolls during the pandemic. The credit is available to any business:
Originally, this credit was capped at $5,000 per employee. The stimulus bill increases the tax credit to a maximum of $14,000. It also extends the credit to apply to compensation paid to a covered employee through June 30, 2021.The bill also allows the Employee Retention Tax Credit to be used at the same time as a PPP loan.
Meals and beverages business owners have with customers, clients, employees, and other business associates in restaurants, bars, and similar establishments are deductible as a business expense. However, for decades the tax law has limited this deduction to 50% of the total cost of the meal. The stimulus bill changes this. For 2021 and 2022 only, 100% of the cost of such business meals is deductible. This is intended to help restaurants and bars, which have been especially hard hit by the pandemic.
The stimulus bill also gives $15 billion to the SBA to make grants to live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, and talent representatives who demonstrate a 25% reduction in revenues due to the pandemic. The SBA may make an initial grant of up to $10 million and a supplemental grant up to 50% of the initial grant. The grants must be used for expenses such as payroll costs, rent, utilities, and personal protective equipment.
The stimulus bill also extended or made permanent 40 tax provisions scheduled to expire December 31, 2020. Many of these benefit businesses, including: